Qualcomm's Business More Important Than its Numbers on Earnings Day

Although Qualcomm (QCOM) is expected to report its fourth consecutive quarter of falling sales, investors Wednesday will instead be checking the brightness of the light at the end of the tunnel when the chipmaker reports earnings for the quarter ended March 31, the company's fiscal second quarter.

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Analysts are forecasting a 22% sales drop to $5.34 billion for the quarter with EPS, excluding one-time items, of $0.96, a 31% decrease over the second fiscal quarter of 2015.

The weak earnings highlight the setbacks the San Diego-based company has spent most of the fiscal year overcoming.

It won back electronics company Samsung Corp., which is using Qualcomm's Snapdragon 820 chip in its new flagship line of Galaxy S7 phones after the predecessor processor was rejected for Samsung's predecessor phone. And Qualcomm signed a number of supply agreements with other manufacturers such as Lenovo Group (LNVGY) and Xiaomi as well as long-fought licensing agreements with chip suppliers such as Yulong Computer Telecommunication Scientific (Shenzhen) Co.

Investors will want to see if those gains also offset the damage -- both real and emotional -- from when Apple (AAPL) opted for modem chips from Intel Corp. (INTL) over those of Qualcomm for its iPhone 7.

"While we do see some potential weakness at Apple, i.e. weak shipments and potential share loss to Intel, we believe the early success of the Galaxy S7 indicates that our forecasts are sufficiently conservative," Credit Suisse Group analyst Kulbinder Garcha wrote in a research note.

He said his "conservative" forecast calls for continuing weakness in Qualcomm's smartphone-related fundamentals, indicating anything strong is a win.

Garcha has an outperform rating on the stock.

Qualcomm has also done well in managing expectations in the run up to earnings releases and consistently outperformed gloomy forecasts during recent announcements. During its first quarter earnings release the company topped EPS expectations by $0.07 and revenue projections by just over $100 million.

Beating expectations means the company will have to do it again Wednesday evening even after it warned during its first-quarter release that earnings wouldn't be so hot this quarter either.

In addition to looking at the health of the company's business, investors also want to know how Qualcomm is dealing with executive defections and a handful of lawsuits. Intel hired Venkata Renduchintala away from Qualcomm in November to head a new Internet-of-Things business unit.

He had overseen a smartphone chip division at Qualcomm and left after the unit leadership was reorganized. Analysts are concerned he might take some of that business with him, especially considering Intel's iPhone win.

The company is also contending with a lawsuit from Korean rival LG Electronics that alleges Qualcomm overcharged the company in a licensing agreement.

The stock is up 6% so far this year as investors digested the continued weak earnings and gained 1%, or $0.52, Wednesday afternoon to $52.35.